- (december 2008)
What the eurozone and the US Civil War have in common: a history lesson.
One of the causes of the Civil War of 1861-1865 was the currency.
The USA was one country with two separate economies. One was agricultural
(the South) and the other one was industrial (the North). The agricultural
states had a labor-intensive economy, whereas the industrial North had
a machine-intensive economy. It was difficult for the South to compete
with the North after the common currency (the US dollar) was introduced in 1792
and the problem simply got bigger as the "union" became a real union, i.e.
it became a free-trade zone in which it was easy to market and transport
products across states. As the North's economy took off,
the common currency got stronger and stronger. This strong currency hurt
the exports of the South.
The civil war arose out of such tensions when the labor-intensive South could
not compete anymore with the industrial North.
Does it ring a bell? That is what is happening in the eurozone today.
There is a highly-competitive North (mainly Germany) that has become
the world's number-one exporter, and that causes the common European
currency (the euro) to appreciate. And there is a less competitive South
(Portugal, Spain, Italy, Greece but also some northern countries like Ireland)
that is suffering because the strong euro removes the only appeal their
products used to have: a low price.
The USA solved the issue with a bloody war that was inevitably won by the
more advanced North. That victory changed the history of the world. Imagine
if the slave owners of the South had won the Civil War and the industrial
North had been defeated. Most likely today the USA would be one of the most
backwards developing countries in the world. Instead it became the world's
superpower and one of the richest places anywhere. The South indirectly
benefited from it: today people move from the northern states to the southern
states (the "Sun Belt"). It took more than a century, but the South got over
it and became an integral part of this highly competitive economy, and, in fact,
it is becoming a more appealing place than the industrial states now that
manufacturing is no longer the driver of the economy.
This history lesson may illustrate the European dilemma. If the Eurozone has
to survive, it will inevitably lead to a clash between North and South.
Hopefully, this time it won't be a bloody one.
The South should hope to lose such a "clash" and become part of a sort of
"Fourth Reich" ruled by Germany. Otherwise the South is doomed to become
a developing country, possibly even poorer and weaker than the Arab countries
of the Mediterranean and the Middle East.
A century from now, when the integration between Northern and Southern economies
will be complete, it might well be that Germans and Scandinavians will dream
of moving to the sunny southern provinces of Italy and Greece just like
the young people of Detroit move to Houston and Atlanta.
TM, ®, Copyright © 2010 Piero Scaruffi All rights reserved.
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- (november 2008)
The financial dictatorship.
Greece, Ireland and Portugal are in trouble. They all risk a financial collapse.
There is no question that they all lived above their means and borrowed money
that they cannot pay back. But to blame only the ordinary citizens is like
blaming the bullet and not the person who pulled the trigger.
It is not only the people who partied. They partied because the financial world
wanted them to party. The global financial world reaped great benefits from the party.
The speculative frenzy that led to the financial crisis was not started by
ordinary people. It was started by foreign banks in cahoots with local
governments. The banks were aiming for high returns. The governments were aiming
for reelection. The crisis is now due to the fact that the banks lost a lot
of money and threaten to destroy entire nations. The governments have no choice
but to ask ordinary citizens to pick up the bill. They do so by guaranteeing
the debt and telling ordinary citizens that austerity measures must be taken,
which is another way of saying that ordinary citizens need to pay the banks
for the money that the banks lost in their highly speculative games.
The banks obviously don't care about the consequences of the "austerity"
programs: those programs will cause a prolonged recession or at least stagnation
at a time when the government should spend money to get the economy going
and not cut spending.
Ordinary citizens will be punishing for at least a generation. What about the
foreign banks?
They are posting profits and distributing bonuses to their employees
who architected this financial mess.
Portugal, Greece, and Ireland have a perfectly legitimate reason to default:
most of their debt is now held by foreign investors. Let the foreign investors
feel the pain too for something that those investors helped create.
It's like punishing tobacco companies for the lung cancer caused by the
cigarettes that they induced people to smoke.
TM, ®, Copyright © 2010 Piero Scaruffi All rights reserved.
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